Types of Closure
There are two types of closures that investors need to be aware of:
- Closed funds: This is where funds cease to exist and investors are either issued units in a fund into which the closed fund has been merged, or money is redeemed to the investor.
- Soft Closed funds: This is where the Investment House has decided to keep running a fund, but will not accept new subscriptions from investors into the fund.
A Closed fund is normally a sign that the Investment House behind the fund cannot run the fund profitably, or rather profitably enough in their eyes, whereas a Soft Closed fund is a sign that the Investment House may have been so successful in raising money that they are unable to continue raising money without impacting on the performance of the fund.
Closed Funds since Worldwise Investor started
The following funds have closed to new money since Worldwise Investor started.
- First State Asia Pacific Sustainability - SOFT CLOSED (31st December 2011)
- First State Global Emerging Markets Sustainability - SOFT CLOSED (31st December 2011)
- Henderson Industries of the future - CLOSED (23rd July 2012)
- Osmosis Climate Solutions - CLOSED (30th September 2011)
- M&S Ethical - CLOSED (September 2011)
- Pru Ethical - CLOSED (8th June 2012)
- IFSL Carbon Footprint UK 350 - CLOSED (November 2011)
The First State Investment Funds have been a victim of their own success and investors who still hold these funds are unlikley to want to trade them because there are currently no alternatives for investing in Asia, or Emerging economies, with a light touch 'sustainable' approach.
Henderson Industries of the Future was merged into the Henderson Global Care Growth fund. The Henderson Global Care Growth fund has a more stringent set of ethical criteria, but was run on the same themes. In practice there was little difference historically in the performance of the two funds. The key issue for investors in these funds is the move of the old Investment team to WHEB, rather than the merger.
Osmosis Climate Solutions was an exchange traded fund which found little investor support. The fund was closed and money returned to investors with the same proposition being taken up and launched by Legal & General with the L&G Global Environmental Enterprises fund. While this was a seemless transition for Osmosis it was unlikley to have been for an investor as a capital gain, or most likley loss, would have been precipitated and the new fund was launched with higher fund management charges.
M&S EThical, Pru Ethical and IFSL Carbon Footprint UK 350 have all been closed due to a lack of investor take up for the fund.
The Tax Implications of Closed Funds to a UK Investor
While a fund merger is also a fund closure, a merger can be preferable for UK investors from a tax perspective because it is not likely under current legislation to result in an event which precipitates a capital gains tax charge, or loss. This enables an investor, should they not want to be in the merged fund, to plan the date of the sales, rather than having the date of the transaction imposed on them by the Investment House.
The soft closure of the two First State Funds does not mean they are completely closed to new investors, but that they have to wait until there are other holders who want to sell and the fund managers are willing to accept them. A trust I am on has bought into both in the last few months.
By Susan Seymour on Aug 21, 2012 at 03:34 PM